Faces Of Foreclosure

Excerpted from the Wall St. Journal
Law Journal
December 24, 2009
Amir Efrati

Foreclosure Challenges Raise Questions About Judicial Role

A group of state and federal judges presiding over foreclosures are wiping away borrowers’ mortgage debt, invalidating foreclosure sales and even barring some foreclosures outright.

The decisions in recent months by a handful of judges in states including Massachusetts, New York and Texas mark a new phase in the judiciary’s battle to stem the rising tide of foreclosures by punishing mortgage companies for paperwork mistakes and alleged mistreatment of borrowers.

The number of judges taking such action remains small, and most foreclosures go through without a challenge . . . but the growing number of rulings against lenders’ claims is raising questions among some legal experts about judges’ impartiality . . .

As early as 18 months ago, several judges in California, New York, Ohio and elsewhere would dismiss foreclosure cases if they could find reason to do so . . . Now, after the country has been mired in a housing crisis for more than two years, more judges are calling these companies on their paperwork glitches, and in some cases going much further in their efforts to help homeowners.

It makes sense for judges to demand that mortgage companies follow the rules to the letter if they want to win foreclosure cases in court, says Raymond Brescia, an assistant professor at Albany Law School who has written about the role of the courts in the financial crisis. “I don’t think that’s a crazy idea,” he says. “To expect plaintiffs to prove their case is what the judicial system is founded on.”

But if judges decide to help borrowers in ways that overlook the merits of individual cases, Mr. Brescia adds, that would “undermine the integrity of the judiciary, and that’s not going to help anybody.” Instead, he says, it might trigger a backlash from legislators or regulators to rein in activist jurists.

At the heart of some of the court rulings is what became a common practice among mortgage companies: filing a foreclosure claim without showing proof that they actually own the mortgage and have the right to foreclose. This occurs in part because mortgages change hands multiple times after the original loan is made, but the mortgage documents and the contracts between borrowers and lenders are never altered to reflect those changes. Years later, it can be difficult to verify who is the owner of the mortgage.

That played a key role in a ruling in October by Keith Long, a state-court judge in Massachusetts. He invalidated two foreclosure sales that had occurred more than two years ago. The judge affirmed his own prior ruling that said units of U.S. Bancorp and Wells Fargo & Co. never had the right to sell the homes.

Judge Long ruled that even though the companies physically held the relevant mortgage documents, the mortgages were never legally assigned to them and recorded with the state.

“They’re selling something they don’t own,” says attorney Paul Collier, who began representing the borrowers in the case last year.

Walter H. Porr, a lawyer for the companies, which are appealing the ruling, says his clients “operated in what had been an accepted industry fashion for the better part of 15 or 20 years.” He adds: “We owned those mortgages.”

In October, a federal bankruptcy judge in White Plains, N.Y., rejected a claim by a mortgage company that the debtor owed $460,000. The judge, Robert D. Drain, said the company, PHH Mortgage Corp., couldn’t prove it owned the debt . . .

And in a prominent case in New York’s Suffolk County on Long Island, Jeffrey Spinner, a state-court judge, canceled $292,000 in mortgage debt after he ruled the borrowers were mistreated by IndyMac Bank (which) displayed “harsh, repugnant, shocking and repulsive” behavior by making no attempt to negotiate a settlement with Diane Yano-Horoski after she and her husband fell behind on payments, despite a state law requiring the company to try . . .

The full story from the Wall St. Journal

The type of reporting from CBS is shocking (see below). I know media is stressed now and staff are dwindling in some arenas, but the following story is completely one sided; NO effort went into presenting a balanced view of the current mortgage crises. To give the lenders’ side without talking with anyone who has been dealing with them for one-two YEARS, is untenable.

CBS News
Washington, December 10, 2009

Obama Administration’s Touted Loan Modification Program Seen as a Bust; Banks Blame Borrowers for Lack of Paperwork

(AP) Just over 31,000 homeowners have received permanent loan modifications under the Obama administration’s mortgage relief plan, a big setback for the government’s embattled effort to stem the foreclosure crisis.

Lenders blame the low success rate – only about 4 percent of the nearly 760,000 who have signed up – on borrowers who don’t return the necessary paperwork to complete the process.

Editor’s Note: Absolutely NOTHING will make me believe this article. I am 363 days into “negotiations” with my lender. Just this morning they called to say that more documents are due and that the last documents they received were in July 2009. I started laughing . . . somewhat hysterically, I might add . . . and referred to my “Lender Timeline,” which I started in December 23, 2008 when they first told me they didn’t have the required paperwork. At no time have I talked with the same person more than once. Papers were submitted repeatedly; the lender lost it. They lost it again when it was submitted through NACA, then on April 28 and April 30 (saying I had not sent proof of income). Lost on June 18. Resubmitted everything on July 27. Lost again as follows:

• October 10, I was told a new Wells Fargo rep had my paperwork; they had everything they need.
• October 21 call re missing documents: Responded only to be told “oh, we have everything we need.” The bank rep offered that their records were “confusing,” and updated the file. They were also submitted on October 23 through NACA.

Calls came the following days requesting missing documents. I returned each call only to be told “I don’t know why we called. We have everything we need:”

• October 22
• October 29
• December 8
• December 9
• December 10 (2 calls)

This is insane! And they DARE put this on the home owner!

The Treasury Department, which released the figures Thursday, said it will step up pressure on the industry to improve. The administration’s focus is to “get as many of those eligible homeowners as possible into permanent modifications,” said Phyllis Caldwell, chief of Treasury’s homeownership preservation office.

When the poor progress was clear last summer, the Treasury Department set a goal of enrolling up 500,000 borrowers by Nov. 1. With the clock ticking, many lenders started giving homeowners verbal approval and a temporary modification.

“They were going to do anything to hit that number,” said Marietta Rodriguez, national director of homeownership programs at NeighborWorks America.

Editor’s Note: Obviously they DID try anything to hit that number; The temporary modification offer I received in September was actually $4532 — $15 less than my original loan payment. One of their own executives said “this is ridiculous” and took it back to the bargaining table.

. . . Eligible borrowers who are behind or at risk of default can have their mortgage interest rate reduced to as low as 2 percent for five years. They are given temporary modifications, which are supposed to become permanent after borrowers make three payments on time and complete the required paperwork, including proof of income and a financial hardship letter.

Without the needed documents, however, borrowers are ejected from the program.

Mike Brauneis, director of regulatory risk consulting at consulting firm Protiviti Inc. predicts that only 20 percent of borrowers who were verbally approved for modifications will ultimately sign up.

“Either people qualify verbally and never send their paperwork in, or they send it in and the numbers are different,” he said.

The following is from a member of a Marin County, California group (Marin Family Action that is fighting to keep their homes against tremendous odds, sloppy record keeping and simple unwillingness by lenders to truly help anyone:

“Define help. ‘Lip service’ does not count. Talking to a different person every time only shows contact was made but NO resolution of progress was made! I would like to see success stories of actual cases of homes saved, city by city, lender by lender, terms, etc. How many of the lenders that refuse to modify the loans with the present owners but then sell to a new buyer at a much lower net price? Who benefits then? The goal is to NOT make homes affordable to NEW buyers but SHOULD BE TO KEEP people in their homes, communities by providing new income sources to them.”

Some borrowers lied about their incomes when they originally took out their loans, and still aren’t able to show proof. During the housing boom, the lending industry didn’t require borrowers to prove their income, and those loans are highly concentrated in the states hardest-hit by the housing bust.

More than half of loans made in California and Nevada from 2004 to 2007, for example, required little or no documentation, according to research firm First American CoreLogic. Nationally about 4.3 million of those loans were made during the boom years.

“You definitely have a group that shouldn’t be in the loan in the first place” said Terry Moore, managing director of consulting firm Accenture’s North America banking practice.

So WHY were people given loans that they should “not have in the first place?” It was practice in California to have the borrower sign blank forms while the mortgage company shopped the loan; they filled in the figures and the borrower never saw them.)

But a watchdog report this week said the government effort “appears capable of preventing only a fraction of foreclosures” and said that only $2.3 million out of a potential $75 billion government commitment had been spent.

PLEASE read the following article with a grain of salt. Absoslutely everyone I’ve talked with that submitted papers will attest to the fact that 1) their paperwork has been lost repeatedly and resubmitted repeatedly, and 2) the lenders work so slowly that by the time they do review the paperwork and decide that paystubs and/or bank records are out of date, they ask for more paperwork . . . as I type, I am on the phone with an associate facing foreclosure who said that his bank (Wells Fargo) called to say “we found the paperwork” and they will be reviewing his submission.” His request for modification started in January 2009 . . . almost one full year now and the bank “found the paperwork.”

Those are the facts: I have 7 single-spaced typed pages (Georgia, size 12 font) indicating every conversation with Wells Fargo Bank and every request for more paperwork ’cause it was lost. I am working with a group in Marin County California who will confirm this.

Associated Press
Lawmakers impatient with Obama mortgage plan
December 8, 2009
By Alan Zibel, AP Real Estate Writer

WASHINGTON – Only one in three homeowners who have signed up for the Obama administration’s mortgage relief plan have sent back the necessary paperwork, highlighting continuing problems for the government’s effort to stem the foreclosure crisis.

The poor results from the mortgage industry drew sharp criticism from House Financial Services Committee members Tuesday. Since the program was launched in March, lenders have made loan modification offers to just 680,000 borrowers, far short of the administration’s goal of up to 4 million.

“Taxpayer-funded foreclosure mitigation programs have been an abject failure,” said Rep. Jeb Hensarling, R-Texas, at a hearing on the program. “Throwing more money at programs that do not work is absolutely insane.”

Under the program, eligible borrowers who are behind or at risk of default can have their mortgage interest rate reduced to as low as 2 percent for five years. They are given temporary modifications, which are supposed to become permanent after borrowers make three payments on time and complete necessary paperwork, including proof of income and a hardship letter.

On Thursday, the government plans to release the first figures on how many modifications have been made permanent.

Much of the criticism for the disappointing results is being leveled at the banks, many of which received billions in taxpayer bailout dollars. Calls are growing louder on Capitol Hill for the Obama administration to take a tougher approach.

“We haven’t spanked anybody,” said Rep. Emanuel Cleaver, D-Mo. “I think they’ve come to the conclusion that spankings are not on the agenda … Why can’t we do something to one of them?”

Herbert Allison, the Treasury Department’s assistant secretary for financial stability, said punishment could be in the works.

“We’re putting them on notice,” he said. “We will exact penalties … and be publicly outspoken about who’s performing well and who’s not.”

Lenders, however, say the majority of borrowers either don’t complete the paperwork or don’t make the payments. At Bank of America, for example, only a quarter of the 65,000 borrowers in trial modifications have sent back their paperwork.

The bank blamed “ineffective communications with customers, shortcomings in document maintenance, misunderstandings about program requirements, and the inability to comply by some borrowers,” according to written remarks from Jack Schakett, Bank of America’s credit loss mitigation strategies executive.

But those explanations only prompted House members to threaten more legislation to curb the foreclosure crisis. A record 14 percent of homeowners with a mortgage are either behind on their payments or in foreclosure. Bargain-priced foreclosures are dragging down home values in neighborhoods across the country. Nationwide, American homeowners have lost $4 trillion in home equity since the housing bust.

“We are terribly frustrated by what’s happening,” said Rep. Barney Frank, D-Mass., the committee chairman. He has proposed attaching $3 billion in assistance for unemployed homeowners to a bill set for a vote in the House this week.